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Even the shorts are having second thoughts about their bearish wagers.

There were more than 15 million shares sold short this past summer as Netflix was bottoming out in the low $50s. Now that Netflix shares have more than tripled — burning more than a few of those naysayers — shares sold short have fallen to 9.7 million. It’s the first time that Netflix’s short interest has fallen below 10 million since March.

Burned skeptics will argue that this is a contrarian indicator. They’ll point out that Netflix is ridiculously overvalued at this point. They may be right on both counts, but they are ultimately wrong about Netflix.

There’s a reason that Netflix has been one of the hottest stocks since last summer. There’s a reason that a service that seems so unnecessary and easy to cancel is now sitting on a record 33.3 million subscribers. There’s a reason that a company with a streaming service that seems capped at a mere $7.99 a month can command an $11 billion valuation.

The bottom line is that Netflix — as incredulous as it may seem at first — actually has one of the healthiest moats in the business.

Amazon isn’t poor. It could certainly afford to pay up if it was worth it. It’s not. Amazon will never have the 33.3 million streaming subscribers worldwide to make it financially feasible. If it were to ever begin charging for video — something that it doesn’t do now since it merely offers it as a free perk to folks paying $79 a year for Amazon Prime memberships — its subscriber base would be puny.

After all, how much cheaper than $7.99 a month can you get when you still know that you only offer a fraction of the content that’s residing in Netflix’s digital vault?

It’s also not just the sum of money that Netflix is willing to spend on acquiring content; nobody knows better than Netflix the content that consumers are actually viewing. Remember the catalog of member ratings on DVDs that helped Netflix make superior recommendations? Well, it’s also crunching all of its data on the streaming end to make sure that it doesn’t pay more for content than it has to when it’s time to renew.

Oh, and let’s not forget about the value proposition to studios. A TV show producer naturally wants to make money by selling streaming rights, but they also want to expose earlier seasons of current shows to as many viewers as possible. It gets them hooked, as we’ve seen with Mad Men, The Walking Dead, and other shows with which Netflix has been instrumental in growing audiences.

If Amazon and Netflix offered a studio a deal, which one do you think would be more valuable? Which one would be critical if exclusivity was desired?

In short, even if a company had $2.5 billion a year to spend on streaming rights, it still couldn’t duplicate the Netflix model.

Beyond Amazon
Comcast Corporation (NASDAQ:CMCSA) and Netflix are passing ships. Comcast used to have more video subscribers than Netflix just two years ago.

After shedding 459,000 net subscribers in 2011 and 336,000 accounts in 2012, Comcast has fewer than 22 million video customers.